Here's Why Tree.com Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tree.com , the parent of online mortgage marketplace LendingTree.com, rose 11.7% on Thursday after the company posted third-quarter revenues of $37.3 million, comfortably ahead of the $33.75 million analysts' forecast, and raised its guidance range for fourth-quarter revenues to $32.2 million to $35.2 million (prior consensus forecast: $32.12 million).

So what: Although Tree.com missed analysts' $0.18 earnings-per-share (EPS) estimate , with EPS from continuing operations of $0.03; however, the company continues to execute well, taking market share in its Mortgage activity. As CEO Douglas Lebda told investors and analysts on the earnings call:

Starting with Mortgage, we had another quarter of very solid performance and continued our trend of separating our results from the overall market. In a quarter where Mortgage originations fell 24% quarter-over-quarter, our Mortgage revenue was virtually flat from Q2 and up 73% from the same period last year. This growth is, simply put, fantastic and a testament to our proposition with lenders in a very difficult market for them.

In 2014, Tree.com is looking for 10% to 15% revenue growth. Given that the mortgage market is expected to contract next year, that growth would imply additional market share gains. In terms of profits, the company is guiding to adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of between $20 million to $21 million, for 21%-27% growth over the midpoint of 2013 guidance.

Now what: Tree.com mortgage platform is an attractive product and the numbers the company reported today reflect that. However, at 25 times next 12 months' earnings-per-share estimate, the stock's valuation reflects that (and then some, perhaps). The stock may prove to be a solid long-term investment from current levels, but it isn't particularly compelling. I think there are more interesting opportunities out there at this time.

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